The two chief executives reveal how the 拢380m deal was done, and what it means for both firms
Balfour Beatty and US infrastructure group Parsons Brinckerhoff began takeover discussions as far back as three years ago, the chief executive of the UK contractor has revealed.
Ian Tyler said the 拢380m deal, which was announced last week and is the biggest in Balfour鈥檚 history, had been building up for a long time, 鈥渁lthough the pace quickened in the past year or so鈥�.
Tyler added that the 拢380m deal was 鈥渁bove all鈥� about giving Balfour the 鈥渃apability to be stronger in the US鈥� (see below).
Meanwhile, Keith Hawksworth, chief executive of Parsons, has explained how he entered exclusive talks with Tyler more than six months ago.
Hawksworth said Parsons had been seeking a deal that would enable it to compete with larger and more diverse sector rivals, such as Bechtel and Fluor, on major projects in the US.
He said: 鈥淲e鈥檝e talked to about 13 organisations in the past 18 months. Balfour is the one where we had the very best interaction with people, from chief executive down. Balfour was keen to exchange people down the pecking order, so we鈥檝e had people over there and they鈥檝e had people over here and the fit has been really good.鈥�
Doncaster-born Hawksworth declined to name the other companies, but they are understood to include Jacobs, Fluor, Aecom, Black & Veatch, Shaw Group and CH2M Hill.
He said a deal with a US rival would have led to the 124-year-old firm disappearing as an entity. Balfour, however, would maintain the brand name and identity (see below).
Based on both companies鈥� last financial results, the deal will increase Balfour鈥檚 turnover by about 拢1.5bn to about 拢11bn and increase its total staff to more than 50,000.
In the City, the euphoria that greeted the purchase and sent Balfour鈥檚 shares up almost 8%, had subsided by the middle of this week.
But Andy Brown, an analyst at Panmure, welcomed the deal. He said: 鈥淭he acquisition of Centex helped to transform Balfour鈥檚 US operations, and I see Parsons as having a similar impact.鈥�
He added: 鈥淪taff retention is a big concern. But engineers are excited by the prospect of working on iconic projects and the combination enhances the prospects there.鈥�
What the deal means for Balfour Beatty
Ian Tyler has made no secret of his desire to be big in the America, and Balfour Beatty has spent more than 拢1bn on acquisitions since 2007, a large chunk of which was on US housebuilders Centex and GMH Military Housing.
Speaking about the Parson Brinckerhoff deal, he said: 鈥淲e needed an acquisition of scale, we needed to acquire a business that focused on infrastructure and we needed a business that had a position in the US. Parsons ticked all the boxes. It鈥檚 a stunningly good fit for us.鈥�
He added that the 124-year-old firm would retain its identify: 鈥淲e need their brand, their processes and their structure. We don鈥檛 have a large professional services business to merge them with 鈥� they will become our professional services organisation.鈥�
The 拢380m deal transforms Balfour Beatty into a global leader in infrastructure services and leaves it well placed in the US as the Obama administration spends billions upgrading railways, roads and bridges. It also provides access to markets such as Australia and Asia where Parsons has a strong presence.
Balfour鈥檚 division of earnings will now be roughly 35% construction and 20% support services, while its investment business and professional services operations will each account for 25%.
The deal also means that about 35% of Balfour鈥檚 business will be in the US, with just under half in the UK. Tyler said: 鈥淲e expect the US market to continue to be steady 鈥� it鈥檚 a very stable market. The Australian economy is in good shape. The area of greatest concern is the UK, but only 25% of our business is dependent on government capital spending and that will be 20% once this business is brought on board.鈥�
鈥淣ow have the same weight and depth in the US that we have in the UK, and now 25% of our overall business is in a less volatile fee-based activity.鈥�
What the deal means for Parsons Brinckerhoff
For Parsons Brinckerhoff, the deal gives one of the US鈥� most respected consulting engineers the financial muscle and diversity to compete with much larger rivals on projects in the country鈥檚 lucrative transport infrastructure maintenance sector.
Keith Hawksworth, its chief executive, said: 鈥淎bout 10 years ago only Bechtel and Fluor were larger than us, but there鈥檚 been an immense amount of mopping up of small and mid-sized companies and suddenly we found we weren鈥檛 in the top group anymore.
鈥淚n the US there are now four or five mega players such as Jacobs, URS, Bechtel and Fluor, then the mid-sized firms like Aecom, CH2M Hill and Shaw, then there鈥檚 a sharp drop to Black & Veatch and us and others.
鈥淲e鈥檙e one of the larger players in the smallest group and although that doesn鈥檛 hurt you immediately, over the long term you can鈥檛 bring to bear the resources that you need to be a player on a mega project. This deal puts us back in that top league.鈥�
Hawksworth said an important factor in favour of the the deal was that Balfour would allow Parsons to keep its identity, whereas a US buyer might not.
He said: 鈥淲e鈥檝e talked to a lot of people, but we were very keen on retaining Parsons Brinckerhoff as an entity. There鈥檚 much less overlap with Balfour Beatty than there is with any of the other major US players with the possible exception of Fluor, but Fluor is very centralised and we are very decentralised. In that respect, our management style matches very well with Balfour Beatty and it was the deal we wanted.
"Having Balfour behind us will help with concessions, PPP and design and build. With Balfour behind us we have a seat at the main table.鈥�
鈥楢 million dollars ain鈥檛 what it used to be鈥�
Hawksworth will remain with the company, allaying fears that key personnel who stand to make sizeable sums from the deal may leave the company.
He said: 鈥淚鈥檒l stay on. A million dollars isn鈥檛 what it used to be. We鈥檝e got quite a few millionaires on paper but the money isn鈥檛 the main driver for our individuals. Our shareholding is very well distributed and the largest shareholder has less than 2%. We have around 4,500 shareholders in total out of about 12,700 staff so we don鈥檛 see massive changes because of this influx of cash.鈥�
When Parsons met Brinckerhoff
Parsons was founded in 1885. Its founder, William Barclay Parsons, designed the Interborough Rapid Transit (pictured above), which was New York鈥檚 first subway. Henry Brinckerhoff, a co-inventor of the third-rail power system for rapid transit, joined the firm in 1906. It has since been involved in some of the largest infrastructure projects in the world, including the North American Aerospace Defence Command underground facility in Colorado, the Taiwan high-speed rail line, and the Palm Jumeirah resort in Dubai (all pictured below).
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